Wachovia Bank is the Trustee of The Common Fund for Short Term Investments, a major investment vehicle for many educational organizations. This $9.4 billion fund has apparently run into liquidity issues, and on September 30, 2008, Wachovia began a termination and liquidation of the Short Term Fund. As Wachovia reports, "Recognizing that the market for certain high-quality short-term debt instruments has become increasingly disrupted over the course of the past several months, and in order to ensure fair and equitable treatment of all investors in the Fund, Wachovia implemented the termination and liquidation plan [on September 30]."
The liquidation plan limits the amounts that can be withdrawn by depositors from Fund accounts. Wachovia is creating two subsidiary accounts within the Fund, 90 percent of current assets in an "Intermediate/Longer-Term Tranche" and the remainder, about 10 percent, in an "Immediate Tranche." Withdrawals will be processed from the smaller fund on a pro-rata basis, according to Wachovia. What this appears to mean is that a depositor with assets in the Fund will be limited to withdrawing approximately 10 percent of those assets for the next 60 days. The balance of the assets will not be available for immediate withdrawal and will be liquidated by Wachovia "as soon as prudently feasible, and as market conditions permit." Liquidation proceeds then will be made available in the Immediate Tranche.
The apparent reason for the liquidation is the freeze-up of the commercial paper market, so this is one major and relatively unpublicized consequence of the national credit crisis.
Wachovia has advised investment managers of these developments. An institution with deposits in The Common Fund for Short Term Investments should obtain additional information from its investment managers.